The name is absent

Mobile Network Interconnection and Investments

Tobias Veith^t,*

ZEW Centre for European Economic Research, Mannheim, Germany

Abstract In markets with competing interconnected networks like
mobile telecommunication markets investments affect the investor’s
and also any competitors’ profits. In a theoretical model it is shown
that cost-reducing investments reduce the investor’s termination
rates and increase competitors’ termination rates under the calling-
party-network-pays regime. Moreover, investments increase off-net
traffic from the investor’s network but also from competitors’ net-
works. Regulation changes the effect on competitors’ termination
rates but all other effects remain the same or are strengthened.
Empirical results support the theoretical findings concerning the
investor’s termination rates and the findings on off-net traffic. Com-
petitors’ termination rates decrease. The negative termination rate
effect even outweighs the quantity effect in the competitors’ profit
functions. Testing for a common regulation-investment effect pro-
vides evidence that the negative investment externality is not due
to regulation.

Keywords regulation, mobile telecommunications, investments, interconnection
JEL Classification L51, L52, L86, L96, O31, O33

tZEW, P.O. Box 103443, 68034 Mannheim, Germany. Phone: +49 621 1235-296, Fax: +49 621
1235-170. E-mail: [email protected]

* I would like to thank Jürgen Weigand, WHU - Otto Beisheim School of Management, Glenn Woroch,
University of California Berkeley, and my collegues Georg Licht, Helmut Fryges and Kai Hüschelrath
for helpful comments. I gratefully acknowledge financial and data support from Deutsche Telekom
AG.

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